momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.It brings together, managers from the agricultural world and important people from external perspectives, such as health, development, strategy and defense. Its objective is to promote regulationof agricultural markets by creating new evaluation tools, such as economic models and indicators,and by drawing up proposals for an agricultural and international food policy.

Dairy in Crisis: TPP Dumping on Dairy Farmers

Erik Katovich, Institute for Agriculture and Trade Policy (IATP)

The dairy crisis is not only about Europe. It is global and makes it difficult in the long-term to pursue or implement free trade agreements such as the transatlantic partnership (TTIP) or the trans pacific partnership (TPP) that jeopardize the sectors and dairy policies from Canada to Europe via the USA.

In an article published by the IATP (Institute for Agriculture and Trade Policy), extracts below1, Erik Katovich outlines the potential consequences of the TPP on the dairy industry in the United States.

As the author reports, due to the global crisis of overproduction (+ 40% since 1995), global milk prices have dropped 55% since their peak in 2014 and are at their lowest level since 2009. The decline in US dairy exports (-13%) in 2015 is the first symptom of the difficulties facing dairy farmers who are however partly secured by the single price milk policy (FMMO).
In this unstable and volatile context, the author demolishes the argument, put forward, in particular, by the Office of the United States Trade Representative (USTR), which suggests that US agriculture benefits greatly from the Trans-Pacific Partnership. Because US farmers face the same problems as other agricultural powers, namely increased competition and a fierce struggle for market share in export.

Above all, saving agriculture through trade is far from effective. As evidence, the author cites the $1.6 billion USD increase in the trade deficit caused by US agricultural trade since since entering into the 6 trade agreements of the North American Free Trade Agreement (NAFTA). This sum maybe small, but it is far from the gains expected.

For Erik Katovich, finalizing the TPP will cause a setback for US farmers by confronting them with markets over which they have no control, as the magnitude of the current crisis requires reducing surplus and consequently that each producing country controls its production at a national level.

Momagri Editorial Board

The U.S. dairy industry is currently threatened by a global dairy glut. Worldwide, milk production has increased nearly 40 percent since 1995, with the fastest increase occurring in the last two years2. In the United States, dairy output exceeded 157 billion pounds in the first three quarters of 2015, and likely broke all-time production records for 2015 as a whole3.

As a result of this oversupply, global dairy prices have plummeted 55 percent since their peak in 2014, and are now at their lowest levels since 2009, according to data from Global Dairy Trade4. According to Bloomberg Business, in early 2015, dairies in the northeastern United States dumped 31 million pounds of milk when processors could no longer accommodate the supply5.

This crisis of global oversupply and crashing prices reflects a deeper crisis for U.S. dairy farmers: the hollowing out of the industry itself. According to data from the USDA, the number of U.S. dairy farms declined from 648,000 in 1970 to 75,000 in 20066. Today, fewer than 60,000 dairy farms are active in the United States7. Those family farmers who remain face the prospect of years of devastating losses and cutbacks due to governments’ and market actors’ inability or unwillingness to realign demand and supply nationally and globally.

The False Hope of the TPP

In the present context of crashing dairy prices and failing farms, the Office of the U.S. Trade Representative continues to argue that the Trans Pacific Partnership (TPP) agreement will be a savior for U.S. agriculture. The agreement, soon to be considered for approval by Congress, would reduce or eliminate tariffs on dairy products across the board8. “U.S. agriculture, as a whole, has a lot to gain from this agreement,” contends Darci Vetter, chief agricultural negotiator for the USTR, because the deal’s tariff cuts promote exports, and exports are the key to growth9.

Yet despite these confident claims by the USTR, the prospects of export-driven growth in the U.S. dairy industry appear dim. U.S. dairy exports fell by 33 percent in value and 13 percent in volume over the past year alone10. Many of those exports had been flowing to China, where growth has now stalled, ending the global commodity boom for the foreseeable future11.

The U.S. dairy industry’s export problems are compounded by similar gluts in other countries. New Zealand (home to Fonterra, a national dairy cooperative that handles one third of global dairy trade and is the world’s largest dairy exporter12) is facing a similar crisis of oversupply and is also looking to snap up export markets13. In short, U.S. dairy exporters face sharp competition and shrinking markets for exports, negating any projected benefits TPP would bring.

Since the advent of the North American Free Trade Agreement, the agricultural trade performance of six trade agreements has added $1.6 billion to the U.S. trade deficit, not a huge amount but far from the salvation through trade promised to farmers and ranchers by agribusiness trade promoters14. As ever, what protects farmers from below cost of production prices for grains and oilseeds are taxpayer-funded safety nets and government programs, such as corn-based ethanol mandate in the Renewable Fuel Standard15 to support prices, not the exports and imports that benefit a small number of traders and processors. (This analysis does not attempt to estimate the environmental and public health costs of maximizing agricultural production for exports.)

A Realistic Assessment of TPP’s Impact on U.S. Dairy

While TPP’s alleged benefits (enhanced export opportunities) are likely to be illusory or marginal at best due to the reasons cited above, the agreement’s impact on imports will be striking. According to USDA projections, the TPP would increase dairy imports to the U.S. by as much as 20.5 percent by the year 202516. The figure below illustrates this impact by merging historical dairy import data with USDA projections of TPP and non-TPP scenarios.

In other words, at a time when dairy prices are at historic lows and American farmers are dumping milk out of desperation, the TPP would place U.S. farmers in competition with more cheap foreign dairy imports. A large proportion of these imports would consist of Milk Protein Concentrate (MPC), a powder distilled from whole milk that is used as an additive in processed dairy products, and casein, another processed dairy-protein that was originally used in the production of paints, cosmetics and plastics before manufacturers found uses for it in processed cheeses17. (Casein is classified as a starch in the Harmonized Schedule of Tariffs18, and so is not counted in the TPP dairy import projections.)

Although the Food and Drug Administration has never determined MPCs to be Generally Recognized As Safe to eat, they nevertheless are an ingredient in countless U.S. food products, including ice creams, cheeses, frozen pizzas and energy drinks19. A U.S. Dairy Export Council report attributes the more than six-fold increase in global MPC production between 2000 and 2012 not only to its cheaper price but to “favorable tariff classifications” and “flexible labeling rules20.”

If TPP were approved, the resulting influx of cheap, processed foreign dairy products and ingredients would further undermine U.S. dairy farmers. Prices would continue to bottom out, farms would continue to fail, and more and more of the industry would fall into the hands of large agribusiness. In fact, the only clear beneficiaries of the dairy-related components of the TPP would be the large corporate buyers of dairy ingredients, such as Kraft and Dean Foods Co21.

Conclusion

Realigning supply and demand in global dairy markets requires sensible supply management at the national level, not more trade liberalization. Towards this objective, the TPP would constitute a step backward for U.S. dairy farmers, further embedding them in volatile global supply chains and leaving them vulnerable to markets over which they have no control.